Income Taxes

The provision for income taxes from continuing operations consists of the following (in thousands):



	YEARS ENDED DECEMBER 31,
	2014		2013		2012
Current:
Federal	$	15,782	$	4,140	$	(4,371	)
State	2,527		449		(1,716		)
Deferred	250		1,046		(18,140		)
	$	18,559	$	5,635	$	(24,227	)

The provision for income taxes from continuing operations shown above varied from the statutory federal income tax rate for those periods as follows:



	YEARS ENDED DECEMBER 31,
	2014		2013		2012
Federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of Federal tax effect	3.2		4.1		5.2
Non-deductible goodwill impairment	—		4.3		(3.4	)
Non-deductible compensation	1.1		—		—
Non-deductible meals and entertainment	1.1		5.2		—
Other	(1.7	)	3.0		(0.3	)
Effective tax rate	38.7	%	51.6	%	36.5	%

Deferred income tax assets and liabilities are composed of the following (in thousands):



	DECEMBER 31,
	2014			2013
Deferred taxes, current:
Assets:
Accounts receivable reserves	$	804		$	779
Accrued liabilities	3,123			2,902
Deferred compensation obligation	1,426			1,111
Pension and post-retirement benefit plans	—			19
Other	75			75
Deferred tax assets, current	5,428			4,886
Liabilities:
Prepaid expenses	(448		)	(224		)
Deferred tax asset, net – current	4,980			4,662
Deferred taxes, non-current:
Assets:
Accrued liabilities	649			579
Deferred compensation obligation	6,324			6,896
Stock-based compensation	1,185			773
Pension and post-retirement benefit plans	5,125			4,916
Goodwill and intangible assets	10,407			11,750
Deferred revenue	28			106
Other	995			1,531
Deferred tax assets, non-current	24,713			26,551
Liabilities:
Fixed assets	(1,651		)	(2,693		)
Other	(122		)	(503		)
Deferred tax liabilities, non-current	(1,773		)	(3,196		)
Valuation allowance	(85		)	(85		)
Deferred tax asset, net – non-current	22,855			23,270
Net deferred tax asset	$	27,835		$	27,932

At December 31, 2014, Kforce had approximately $26.8 million of state tax net operating losses (“NOLs”) which will be carried forward to be offset against future state taxable income. The state tax NOLs expire in varying amounts through 2033.

In evaluating the realizability of Kforce’s deferred tax assets, management assesses whether it is more likely than not that some portion, or all, of the deferred tax assets, will be realized. Management considers, among other things, the ability to generate future taxable income (including reversals of deferred tax liabilities) during the periods in which the related temporary differences will become deductible.

Kforce is periodically subject to IRS audits, as well as state and other local income tax audits for various tax years. During 2014, the IRS finished an examination of Kforce’s U.S. income tax return for 2010 and 2011 with no material adjustments. Although Kforce has not experienced any material liabilities in the past due to income tax audits, Kforce can make no assurances that this will continue.

Uncertain Income Tax Positions

An uncertain income tax position taken on the income tax return must be recognized in the consolidated financial statements at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2014, 2013 and 2012 is as follows (in thousands):



	DECEMBER 31,
	2014			2013			2012
Beginning balance	$	403		$	133		$	72
Additions for tax positions of prior years	90			269			36
Additions for tax positions of current year	—			25			25
Reductions for tax positions of prior years – lapse of applicable statutes	(35		)	(24		)	—
Settlements	(180		)	—			—
Ending balance	$	278		$	403		$	133

The entire amount of these unrecognized tax benefits as of December 31, 2014, if recognized, would not significantly impact the effective tax rate. Kforce does not expect any significant changes to its uncertain tax positions in the next 12 months.

Kforce and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states. Global files income tax returns in the Philippines. With a few exceptions, Kforce is no longer subject to federal, state, local, or non-U.S. income tax examinations by tax authorities for years before 2010.